Experts explained the historical fall of the lira

The Turkish lira on Thursday updated its historical low against the dollar after the unexpected decision of the Central Bank of Turkey to raise the key rate to only 15%, while the market expected an increase to at least 20%. 

As a result, the rate of the USD/TRY pair fell to a historic low of 24.6356 lira per US dollar. However, economists note that the market reacted early to the central bank's decision, since not everything depends on the rate.

The Central Bank of Turkey today raised the key rate from 8.5% to 15% for the first time in two years. This was the first decision of the regulator with the new leadership headed by Hafize Gaye Erkan. Many analysts expected a sharper increase, given that annual inflation in Turkey reached 39.6% by the end of May. 

Market participants expected that the regulator would raise the rate to at least 20%, so the reduction in the expected rate led to the strengthening of the foreign currency. 

At the same time, analysts note that the strengthening of the lira is undesirable, since it is unfavorable for exports. It is expected that the changes implemented by the Bank of Turkey will occur not only in the rate, but also in macroeconomic measures. In general, representatives of the central bank expect that the inflow of foreign currency will be able to calm the situation with the exchange rate.